Ask a question
0 0


A company is selling its stock at $17.95 per share and expecting it to grow by 5%. It usually distributes 50% of its earnings per share as dividends. Find the value of his stock if the earning per share is $2.15 and if an investor would like to earn a 9% yield.
Tutors, please sign in to answer this question.

1 Answer

C -- "earnings yield" is about 12% (2.15EPS/18 sh price) -> div Y is 6% w/ half EPS paid out.
If we want 9% div Y, buy at 2/3rds or $12/sh ... If we want 9% annual return, the current sh price expects to brings 5% in sh price rise plus 6% div Y -> more than 9% combo ==> a stock valued in low 20s or 10x EPS will likely bring the 9% combo return ... Best wishes :)